Will The Real Phillips Curve Please Stand Up

No society that depends on money can work for long if nobody knows the true value of things, including the value of money itself. The price of attempting to live in a culture of pervasive dishonesty is that a re-set is inevitable. When it happens, it will be hugely destabilizing. – James Kunstler

Phillips Curve R.I.P. –  Paul Craig Roberts

For a decade central banks have printed enormous quantities of new money. The excuse is to stimulate the economy by reviving inflation. However, the money has, for the most part, driven up the prices of financial assets instead of consumer and producer prices. The result has been a massive increase in the inequality of income, wealth, and opportunity.

The quantitative easing policy followed by central banks is based on belief in an economic relationship between inflation and GDP growth—the Phillips curve—that supply-side economics disproved during the Reagan administration. The belief in the Phillips curve persists, because supply-side economics was misrepresented by the financial media and neoliberal junk economics.

The fact that something as straightforward and well explained as supply-side economics can be misrepresented for 35 years should give us all pause. When successive chairmen of the Federal Reserve and other central banks have no correct idea what supply-side economics is, how can they formulate a workable monetary policy? They cannot.

The Phillips Curve is the modern day version of the Unicorn. People believe in it, but no one can find it. The Fed has been searching for it for a decade and the Bank of Japan for two decades. So has Wall Street.

Central banks’ excuse for their massive injections of liquidity in the 21st century is that they are striving to stimulate the 2% rate of inflation that they think is the requirement for sustained rises in wages and GDP. In a total contradiction of the Phillips Curve, in Japan massive doses of central bank liquidity have resulted in the collapse of both consumer and financial asset prices. In the US the result has been a large increase in stock averages propelled by unrealistic P/E ratios and financial speculation resulting in Tesla’s capitalization at times exceeding that of General Motors.

In effect pursuit of the Phillips Curve has become a policy of ensuring financial stability of over-sized banks by continually injecting massive amounts of liquidity. The result is greater financial instability. The Fed is now confronted with a stock market disconnected from corporate profits and consumer disposable income, and with insurance companies and pension funds that have been unable for a decade to balance equity portfolios with interest bearing debt instruments. Crisis is everywhere in the air. What to do?

The Phillips Curve has been working its mischief for a long time. During the Reagan administration the Philips Curve was responsible for an erroneous budget forecast. In the 21st century the Phillips Curve is responsible for an enormous increase in the money supply. The Reagan administration paid a political price for placing faith in the Phillips Curve. The price for the unwarranted creation of money by central banks in the 21st century is yet to be paid.

You can read the rest of this, which I recommend, here:   PHILLIPS CURVE R.I.P.

9 thoughts on “Will The Real Phillips Curve Please Stand Up

  1. PCR hits them out of the park just like you do, Dave.
    Aside from this article, PCR had a post from Eric Peters/American Dystopia about how Lincoln, yes that Lincoln; the car company, is putting a cattle car compliance module called CLEAR in all it’s new cars (in Germany).
    CLEAR gives the airport security the all clear when a Lincoln driver shows allows up at the gate. The driver gets to be first into the pen, complete with a runway model doing the hand job and a chocolate on the pillow.
    The module gives the all clear so that the airline customer doesn’t have to be fully fingered and felt up, like some of the cattle in the steerage strap hanger class. Lincoln, always thinking about their customers.

    Just so you know, when I go through TSA I opt for the full feely pat down, preferably in a small room where things can get really freaky. My smart phone app allows me to pre order my choice of ladies who will give me the full reach around. Hell, if they’re going to ‘do’ me at least they should earn their pay (sarc) I want the full treatment dammit. I’m paying for it. I’d send you a video of the last check point but this is a family show

    So, about the yield curve, phillips curve, Keynesian economics, supply side theories, I am reminded of the best line ever from Mort Sahl. Around 50 years ago he was asked to define Transcendental Meditation. He responded in his brilliant fashion:
    “It’s when a hairy little guy with a beard starts talking above your head while putting a bite on your wallet.”
    Referring to Bernake, of course.
    Suffice it to say, when economists start talking above your head the bankers WILL put a bite on your wallet.

    As a parallel, no one knows the value of anything because Bit Coin has no value except in the mind of the next B. C. Holder but along the line to the next bag holder, it will make a mockery of the dollar, precious metals and our mental state as we watch a full retard ponzi unfold in front of our eyes.
    And that reminds me of a Steve Wonder song from Inner Visions where the new kid in town gets left holding a bag of dope, is hooked up by John Law and gets 10 years for being an unwitting accomplice to a police state crime of no consequence, particularly now that pot is legal.
    BC might the next unicorn IMO, but in it’s evolution it’s made the dollar look like a clownish freak show show while giving the government another means to explain the reason they get to finger you, steal from you and give you a dose of radiation for good measure. I smell a conspiracy here. Either that or I need to change my socks.
    Cheers Dave.
    Stay frosty, things are starting to get freaky

  2. Anybody that talk’s seriously more than 60 second about the federal reserve is in my view not credible. since 1913 the fed has destroy it’s 2 mandates ( purchasing power , and employement) I hope it took less than 60 second to read this.

    1. These charlatans are nothing but useful idiots for the criminals who run the country. They create a false veneer of legitimacy for the years of non-stop looting and money counterfeiting that will ultimately destroy the economy. After all, they are first rate academics and theorists, right? Actually, you would be better off following astrology and horoscopes.

      If anyone in Congress, after listening to the gibberish and babel coming out of Yellen’s mouth during her last presser, still can’t recognize these second rate buffoons for what they are, then there’s no hope for any reform.

  3. I just don’t know what the fuck to say about this anymore. In my stamp collection I have some German stamps from 1923 with a face value of billions of Deutschmarks. Their total value today is around 20 Dollars for several hundred of them. Oh, what, does anyone think fucking Bitcoin is any different?

  4. Rock, Paper, Scissors

    4) Are you all quite aware that A.W. Phillips’ 1958 Economica paper actually dealt with the relationship between unemployment and WAGE inflation in a century of British data (through 1950) when Britain was on the gold standard and GENERAL price inflation was nonexistent? The “Phillips Curve” is actually a relationship between unemployment and real wage inflation, which can also be demonstrated in U.S. data (where other interpretations of the Phillips Curve cannot) and asserts nothing except that labor scarcity results in an increase in the real price of labor. This is not a relationship that can be manipulated to create more jobs. There is certainly room for monetary policy to improve economic conditions when it operates on a binding constraint, but at present, neither interest rates nor the quantity of base money are binding constraints on economic activity.


    1. Was not aware of the history of the Phillips Curve. It was boring enough studying macroeconomics in college. Thankfully my undergrad prep enabled me to test out of the economics course requirements at U of Chicago B-school. If you look at like 200 year timeline of inflation in the U.S., you’ll note that inflation was almost non-existent before 1913…

  5. Dave, Thursday morning at 9:23am eST right before the market opening:

    Gold Futures volume: 215k

    S&P 500 Futures volume: 150k

    Is that telling that Gold Futures has MORE volume?

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